Individual Investor

Institutional Investor

Pay to Play or Go Home

Jason Grantz

May 15, 2017

As we get closer and closer to the applicability date of the fiduciary rule, the industry is starting to show its cards on how the rule will impact the landscape. What’s still unclear is whether or not the rule will actually become applicable, see ACOSTA Getting Heat to Delay Fiduciary Rule. What’s clear is that regardless of whether the rule is applicable or not, the industry will be forever changed.

Over the past year, we’ve engaged in many conversations with the home offices of Broker Dealers as they sought to streamline provider offerings and categorize them into ‘fee-only providers’ or ‘commission providers’ (in some cases thin down the offerings altogether). Given our sphere of interest, we’ve been thinking about this process from the perspective of how it impacts Qualified Retirement Plans and IRAs.

However, the other day, something very interesting came to light. One of the largest Broker Dealers in the world, Morgan Stanley, announced that they would no longer be offering the largest money manager in the world, Vanguard, on their platform, Morgan Stanley Dumps Vanguard Mutual Funds. The stated reason is due to a broad strategy to streamline or overhaul its offerings down to 75% of the current level. However, many in the industry are now speculating that it is due to a different reason. The new DOL rule requires level compensation arrangements that touch many broad areas. And while it may not be known to the world at large, most of us in the industry are aware that some fund families will pay very large sums of money to gain shelf space at large distributors such as Morgan Stanley. This is commonly referred to in the industry as ‘Pay to Play’. So, this is an interesting twist. Many in the industry are now speculating (Morgan Stanley Decision likely due to DOL Fiduciary Rule) that this removal of the extremely popular and low-cost Vanguard funds is because Vanguard historically has/will not Pay to Play. This could lead one to conclude that in order to comply with this new rule that is intended to help investors, one of the largest investment distributors has decided to get rid of fund families who won’t Pay to Play. So ‘Pay to Play’ helps investors….huh? That’s a head scratcher. This highlights a major ‘Conflict of Interest,’ one that the ‘Conflict of Interest’ Rule is supposed to prevent. It’ll be interesting to see how Morgan Stanley’s competitors frame this when in a competitive situation.

Obviously, we are all paying attention to the DOL Fiduciary rule and the impact in the marketplace. One thing remains true regardless of what happens with all of this, Unified Trust has been and will remain a ‘Named Fiduciary’ to our clients, continuing to provide services as a true fiduciary would. This means continuing to improve outcomes for retirement plan participants better than any other provider; reducing risk to employers better than any other provider; and providing an opportunity for retirement plan advisors to gain scalability when working with us as a partner. Doing the right thing for each and every client really isn’t hard, but it does require that conflicts of interest are eliminated. Playing a fiduciary role for your clients can do that; ‘Paying to Play’ cannot.

Products and services offered by Unified Trust Company, N.A. are not insured by the FDIC, are not a deposit or other obligation of, or guaranteed by, Unified Trust Company, N.A., and are subject to investment risks, including possible loss of the principal amount invested.